A hostile acquisition, or hostile takeover, refers to the acquisition of a company other than through the purchase of the company directly. A hostile acquisition may be an important corporate strategy to achieve business goals and growth. For an acquiring company, a hostile takeover can be a challenging process. The boards of directors of many corporations commonly have mechanisms in place to attempt to prevent hostile takeovers and a targeted company may have a number of potential defenses available to it to attempt to deny a hostile acquisition.
Most hostile bids to gain ownership begin with tender offers. The company seeking to acquire the target company will make a public offer to shareholders of the target company to acquire their shares in the company at a value much higher than market value. The goal of the hostile bid is to acquire greater than half of the company’s stock, gaining ownership of the company without the approval of the board of directors or shareholders. Achievement of the goal will allow the acquiring company to gain control of the board of directors, leading to a vote to approve the sale of the company to the hostile bidder.
There are a number of preemptive or reactionary measures a company can take if it wishes to avoid being acquired through a hostile takeover. The company can put in place a poison pill which will lead, ultimately, to its stock being diluted in the event of a hostile takeover; stagger the election of board members, stretching out proxy fights; or requiring large severance packages for senior management. The target company may also require that 50 percent of shareholders must approve of new owners, sell desirable company assets or seek to find an alternate buyer for the company that it approves of.
The goals a target company hopes to achieve through the defensive measures available to it seek to increase the cost of acquisition, lengthen the amount of time the process will take or lower the target company’s value to make it less attractive. Acquiring companies must also be aware of state and federal laws that may be implicated when acquiring a business. It is important for any company involved in either a hostile takeover or defending against one to understand what can sometimes be a complex process and how to effectively respond to challenges as the process progresses.
Source: smallbusiness.chron.com, “What Could Make a Hostile Takeover Difficult?” Grygor Scott, Accessed April 13, 2015